Rewriting the Rules of the European Economy by Joseph E. Stiglitz

Author:Joseph E. Stiglitz
Language: eng
Format: epub
Tags: Epub3
ISBN: 9780393651416
Publisher: W. W. Norton & Company
Published: 2019-08-28T00:00:00+00:00

* The main provisions of which restricted a bank’s ability to engage in proprietary trading, i.e., trading on its own behalf, using the information that it gleans from serving others. The conflicts of interest were obvious, though banks pretended that they didn’t exist.

† There were provisions in the contracts that seemingly held the originators and investment banks partially accountable for losses. But after the financial crisis, both the originators and investment banks refused to honor those contracts. Only after long litigation were banks forced to pay amounts in the billions. The originators and investment banks also made representations about the quality of the mortgages in the securities they were selling. Investors relied on these, partially because they believed that no bank would risk its reputation. As it turned out, many of the originators engaged in massive fraud and the banks seemed resilient to the loss of reputation, perhaps because virtually all of them engaged in similar activities.

‡ The lenders to the banks often thought their loans were safe because they were collateralized. But in the midst of the crisis, the market value of the collateral often dropped rapidly, in some cases to zero.

§ Economists refer to this problem as one of “time consistency.” What bankers intend to do in some future contingency may not be what is optimal to do when that future contingency actually arrives.

¶ Worries about state aid loomed large in the resolution of some of the troubled banks in Italy.

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